In The Trenches

Despite my best intentions, it has been hard to publish a blog post once a week. I could put in a weak effort (get it?) and publish something of little substance simply to fill my quota. But I rather not do that.

Today's post is about my experience as a startup founder and early-employee.

Define "Startup" ...

"Startup" is a really broad term. Not just because startups come to fruition in various ways (i.e. Serial entrepreneur injects millions of dollars into a new company to accelerate its growth from day one Vs. Novice and underfunded entrepreneur bootstraps his/her business and goes 1+ years without any revenue) but also because they are in different industries.

There are, however, certain characteristics that define a Startup regardless of its early history and industry. This is a definition, as you'll likely infer, that comes from Silicon Valley culture.

A startup is a company that is trying to develop a novel and repeatable business model that scales well. Check out the bottom of this post for more info if you're interested.

Now that we have a clear definition of the term "startup", we can talk about life within one from different points of view.

As a Founder

Being a startup founder at a young age is an interesting experience. You have idols such as Paul Graham who place the naive twenty-something technologist on a pedestal, telling you how rewarding a startup can be. His romantacising essays have definitely influenced myself and many others to take the plunge.

As the founder of a startup, you have to have deeply-held convictions about your business and its purpose. You have to believe in a future that no one thinks is sane or even viable. This is particularly tough to handle if you've never started a company with such high ambitions. Having deeply-held convictions about your business means that you have to be emotionally ready to cope with the company's volatile early life.

Herein lies one of the larger setbacks for first-time founders such as myself: Being that I was quite new to starting a business, let alone a business with the aim of disrupting an industry, it was unlikely that I'd see things through. It's just simple statistics. But the media makes this experience out to be a fun walk down the yellow brick road. It's not. And if you don't have connections to investors or don't have a respectable founding team with legitimate qualifications (legitimate enough for an investor to take you seriously) then you're really going to struggle. In startups, it's just as much about what you know as it is about who you know.

"Starting a startup" is not as easy as reading a book or two (or three) and then applying what you've learned. If it were that easy then everyone would be starting a startup. As mentioned before, the media has romanticized the endeavour. There's a disconnect with people and the expectations they should have going into it. Not to mention that survivorship bias tints our already-rose-tinted-glasses. We constantly hear success story after success story in the news, but there's rarely any mention of the countless others who thought they had made it only to fall short of the limelight.

My suggestion to those who are considering starting a startup is to first get experience at a high growth company. This isn't new advice but I believe it's the best advice a young ambitious entrepreneurial technologist could hear. It's better to own a small piece of a large pie than a large piece of a small pie. Turns out most startups are minuature pies.

Once you've worked alongside a seasoned entrepreneur within a fast-growing company you'll get a feel for how things should be run. In turn, you'll be better prepared to start that unicorn you've always wanted to start.

This leads me to another lesson I learned: Stop trying to start a startup.

If you are a curious and observant person, you'll eventually come across an opportunity to start something innovative. Until then, focus on more altruistic endeavours. More often than not, revolutionary companies come about by stumbling upon unique ideas (or ideas from unique perspectives) and acting upon them. It happens organically. Looking back at Bill Gates, he probably didn't have a business plan (and if he did, it likely went out the window real quick as he realized how many wrong assumptions he had made). There's no question of the man's ambition from the outset, but it took him some time and luck to organically arrive at the opportunities before him. I struggle to imagine Steve Jobs, Bill Gates, etc, sitting in front of a desk with a business model canvas analyzing their various business ideas and then deciding to go with the one that the model stated was most likely to succeed.

Stumbling upon startup ideas organically is a healthier approach to entrepreneurship. And this approach to founding startups captures the essence of capitalism really well - the founders of legendary companies capitalized on the unique opportunities presented before them.

"Stay Hungry. Stay Foolish." is a quote that Steve Jobs took from The Whole Earth Catalogue.

As an Employee

My first foray into the world of startups was during an internship in 2014 at a small Toronto startup. The experience was odd (for reasons I can get into in another blog post), but I realized that I wanted to work with open-minded people looking to start interesting companies. Especially considering I had previously worked at two different monolithic companies with 100 year-old histories. After this internship, I thought I'd give starting my own startup a go.

Long story short; it didn't work out. But I would do it again in a heartbeat as it took me down a very interesting road (read here and here for more info).

At this point, I hadn't yet realized how valuable it might be to apprentice under an experienced team of entrepreneurs.

By the end of August 2016, I was stressed out, exhausted, broke, and lacking a general sense of direction with another company I was trying to start. My term at the Next 36 was coming to an end and I had to decide what to do with my life. Despite being absolutely depleted, I knew I wanted to continue on this road. Given my strong resentment of the education system, I would not allow myself to return back to school. Thankfully, after chatting with a former Next 36er who had just recently founded a company, I was given the opportunity to help out to whatever extent possible.

And here I am, as a Full-Stack engineer at Homigo. It's been a hell of a ride, but I couldn't be more certain that this was the right thing for me to do.

I've learned so much since I started in August, both from a software development role and also a managerial role. But life as one of the first employees at Homigo (or any startup, really) isn't perfect.

Maybe I'm being a little paranoid but I know that options-based compensation is laden with caveats that are not communicated to employees.

To be clear; this is not to say I'm unhappy in any way. Nor do I want to come off as greedy, especially in the face of the opportunities that Homigo has provided me. But there is an opportunity cost to doing what I'm doing. I wouldn't be putting in so many hours if I didn't believe in the long-term vision of the company and didn't find the work to be highly engaging.

But I do expect fair compensation and want to express my thoughts regarding this topic especially since so many early employees have been misled before me.

It's important to have a very good understanding of your compensation structure when joining an early-stage startup company. Know how options really work and what alternatives (such as RSU's) are out there. It's not as simple as reading in your contract that you'll have x% of Company in y years.

The other piece of advice I would give is to be prepared to negotiate. Founders and employees' incentives aren't always aligned, and so if you simply accept the first offer you're given you may be getting much less equity compensation than you deserve.

Part of the compensation I attain is also in the form of endless learning opportunities and the ability to influence the trajectory of the business. But this is no argument to forgo tangible compensation in the form of equity or greater salary.

Besides my concerns for my long-term compensation, there's the pressure of meeting tight deadlines and the ensuing long work days. But that's not much of an issue when you're passionate about what you're doing, and are surronded by happy and ambitious people.

Homigo has quadrupled in size since January (We've gone from 2 employees to 8!). I can't go into too much detail about our progress, but things are going quite well.

This company has the right ingredients to become enormous. Only time will tell where things go.

Till next time :)

Appendix: Startup Definition

1 - Novel

A new restaurant is not considered a "startup". There's nothing new or unique about [traditional] restaurants. A startup is trying to go about solving a problem in a unique way. So unique, in fact, that oftentimes new industries get created altogether as a consequence of the startup becoming successful. Bill Gates and Microsoft were the pioneers of the software industry in a time when nobody thought there was money to be made in the code that ran computers.

2 - Repeatable

Paraphrasing Steve Blank here, "Startups may get orders that stem from board members’ customer relationships, engineering one-offs, or heroic single-shot efforts by the CEO. These are great, but they aren’t repeatable by a sales organization. Search not for the one-off revenue hits but rather for a pattern that can be replicated by a sales organization selling off a price list or by customers regularly visiting the website."

From Quora, "'Repeatable' refers to the ability to get recurring revenue or repeat sales from each customer. Apple gets this from repeated iPhone purchases; Amazon from ongoing sales of many products; Facebook from ongoing usage that drives ad revenue."

If you create a product that a user loves but only needs to purchase once, then you might be in trouble. Other than real estate and big ticket items, it's tough to make a successful business around one-time-purchase businesses. This is actually a big reason why Planned Obsolescence is important to businesses.

I also recently learned that online dating businesses face a similar problem. Once you find your soulmate, there's no reason to go back and use the service again. This is why online dating websites game their system to keep you searching for your match for longer.

3 - Scalable

Refers to the ability to serve many customers profitably. If you have a unique and repeatable business model that cannot scale then you just end up with a nice small business - not to say there's anything wrong with that. The problem that may arise from such a company, however, is that its uniqueness might also be its weakness: Other business owners might notice your creative approach to serving customers and replicate your business. Seeing that you don't have much marketshare, your competitors might end up cannabilizing your sales.

Another problem with a non-scalable startup is that its uniqueness might mean that the business has unusually high operational expenses, or Cost of Goods Sold. If you produce something unique, then you might not have the same amount of options for sourcing the materials or tools you need to produce your product / service.

Thus scaling is important to ensure the livelihood of the business.

From Quora, "VCs invest in repeatable, scalable business models because that is the most promising formula for exponential growth." In other words, VCs invest in these sorts of businesses with the expectation that they'll be scaled out immensely in order to have a high return on investment.